Looking for a top dividend stock to add to your portfolio as we head into 2025? How about energy giant Exxon Mobil (XOM)? I’m bullish on the $466.5 billion energy giant based on its compelling and realistic plan for increasing earnings and cash flow over the medium term, its attractive dividend yield and strong history as a dividend stock, and its modest valuation. Additionally, Wall Street analysts believe shares have potential upside of nearly 25% over the next 12 months.
Exxon Mobil is a great dividend stock based on its yield, consistency, and dividend growth.
First and foremost, shares of Exxon Mobil yield an attractive 3.7% on a forward basis, nearly triple the yield of the S&P 500 (SPX), which currently yields just 1.3%. Additionally, the energy giant has a long-held reputation as a reliable dividend stock. It has paid dividends to its shareholders for an impressive 42 consecutive years and has grown this payout for the past 26 years in a row, making it a Dividend Aristocrat.
In addition to its dividend, Exxon Mobil is returning a lot of capital to shareholders via share repurchases. The Texas-based company plans to buy back $20 billion worth of shares in 2025 and expects to follow this up with a similar pace in 2026. Share buybacks can be accretive to shareholders as they reduce the number of shares outstanding (which increases earnings per share) and because they can be viewed as a signal that management views shares as undervalued.
On the subject of valuation, management might be on to something. Shares of Exxon Mobil are quite cheap, trading at just 13.3 times earnings, well below the average valuation for the S&P 500, which currently features an elevated average valuation of 25.2 times earnings.
In a market environment where many investors and observers are worried that stocks have gotten too expensive following gains of 23.8% for the S&P 500 and 29.8% for the Nasdaq (NDX) in 2024, there are no such concerns about Exxon Mobil. The stock is up just 5.8% this year, leaving it plenty of room to catch up with the broader market rally going forward.
Owning a more defensive stock like Exxon Mobil with a cheap valuation, performance that has lagged the broader market in 2024, and enticing dividend yield could be an attractive place to be positioned if and when investors rotate from some of 2024’s highly-valued winners into some of the market’s laggards.
With this above-average yield and undemanding valuation, one might assume that Exxon Mobil doesn’t have much growth ahead of it. However, the company is far from a melting ice cube with its best days behind it — management has a compelling vision for growing earnings and cash flow from today through 2030, which it recently outlined for investors.
According to the plan, Exxon Mobil expects to add $20 billion in potential earnings growth and $30 billion in free cash flow growth between now and 2030. It plans to grow earnings at an attractive 10% compound annual growth rate (CAGR) and cash flow at an 8% CAGR over this time frame.
The energy giant has many levers it can pull in order to achieve this, which it laid out in its strategic plan. Among other aspects of the plan, the company says it will wring out more synergies from its recent acquisition of Pioneer Natural Resources to the tune of $3 billion annually and add $7 billion in structural cost savings compared to the third quarter of 2024.
It’s not all cost-cutting, though – Exxon Mobil also aims to increase production to 5.4 million oil-equivalent barrels per day, with the at least 60% of this output coming from advantaged assets (projects with high returns and low cost of supply, like its assets in the Permian Basin and Guyana). The great thing about these targets is that the company isn’t relying on unrealistic, pie-in-the-sky forecasts for oil and natural gas prices in order to hit them. Rather, the company assumes a conservative $65 per barrel for Brent oil, which is actually well below today’s price of about $74 a barrel.
It also assumes a conservative $3 price for natural gas, well below today’s price of $3.72. Oil prices have languished for much of 2024, and it’s hard to say what will happen between now and 2030, but these conservative forecasts leave plenty of margin for error, and if oil prices are higher between now and 2030, this could represent further upside for Exxon Mobil given these conservative assumptions.
Perhaps best of all, given Exxon Mobil’s longstanding propensity for shareholder returns, management also alluded to much of this extra cash being used to reward its shareholders, stating that “cash flow and earnings growth generate a further $165 billion in surplus cash over the plan period driving increased shareholder distributions.”
Turning to Wall Street, XOM earns a Moderate Buy consensus rating based on 12 Buys, seven Holds, and one Sell rating assigned in the past three months. The average analyst XOM stock price target of $131.20 implies 22% upside potential from current levels.
Adding it all up, I’m bullish on Exxon Mobil as a top dividend stock for 2025 and beyond based on its attractive dividend yield, long and proud history of paying and growing its dividends, inexpensive valuation, and its compelling, yet realistic, plans for delivering significant earnings and cash flow growth through the rest of the 2020s.
